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Thursday, February 09, 2012

Online Tax Rules

Attention, online shoppers. The days of tax-free online
shopping may be coming to an end.

More than a dozen states have enacted legislation or rules
to force online retailers to collect sales taxes on purchases, according to tax
publisher CCH.

Similar legislation is pending in 10 states.

Reasons for the spread of online sales tax laws:

Budget shortfalls. The National Conference of
State Legislatures estimates that uncollected state sales taxes will cost
states $23 billion this year. Residents of sales-tax states are supposed to pay
taxes on online purchases, but because retailers don't collect them, they
rarely do.

Heavy lobbying from retailers. Retailers have
long argued that exempting online purchases from sales taxes gives online
retailers an unfair advantage over brick-and-mortar stores. The pressure
escalated in December after online giant Amazon offered customers a one-day 5%
discount if they used its Price Check app to make a purchase while in a
physical store, says Jason Brewer of the Retail Industry Leaders Association,
which supports taxing online purchases.

"A store manager has the power to say,
'I'll match that price,' but they don't have the power to say, 'I won't charge
you a sales tax,' " he says. "They go to jail if they do that."

Gridlock. Legislation has been introduced in the
House and Senate that would give states broad authority to require online
retailers to collect state sales taxes, as long as they streamline the
collection process.

Amazon supports the legislation, says spokesman Ty Rogers.
Federal legislation to permit interstate collection of sales tax "is the
only way to level the playing field for all sellers and provide states the
right to obtain more than a fraction of the revenue already owed," he
says.

Despite bipartisan support, though, the bill has languished
in Congress. "Many of the states have gotten somewhat frustrated waiting
for Congress to act," Brewer says.

In 1992, the Supreme Court ruled that states couldn't
require retailers to collect sales taxes unless the retailers had a physical
presence in the state.

Increasingly, though, states have interpreted that
requirement to include subsidiaries or affiliates of online retailers, or
online retailers with a warehouse or distribution center in the state.

Critics say the measures would force online retailers to
collect sales taxes in dozens of states and jurisdictions, with different rates
and definitions of which products are taxable.

"A brick-and-mortar retailer only has to keep track of
one sales tax rate," says Joseph Henchman, vice president for the Tax
Foundation, a non-profit tax research group. "An online retailer would
have to collect tax based on where their customer is located."

The administrative burden would be particularly difficult
for small businesses that sell their products online, says Jerry Cerasale,
senior vice president for the Direct Marketing Association.

These merchants could be forced to raise prices to cover the
added compliance costs, Cerasale says.

"That's going to harm e-commerce, which is one of the
few promising growth spots in this somewhat stagnant economy."